IMF raises outlook for 2012 but adds caveat

The International Monetary Fund (IMF) has upwardly revised its growth outlook for the global economy for 2012, citing policy maneuvers in the euro zone and improving U.S. data that have together dissipated the sense of crisis felt in past months.

It also underscored the “fragile” nature of the status quo, noting that there are persistent downside risks, such as emerging economies’ growth falling short of expectations and continued market concern over euro zone debts.

According to the Ministry of Strategy and Finance yesterday, the IMF forecast that the global economy will grow 3.5 percent this year, raising its outlook by 0.2 percentage points from its January forecast.

In particular, the IMF revised up its U.S. economic outlook by 0.3 percentage points from January’s prediction to 2.1 percent yesterday, as the mixed but improving economic data from the world’s largest economy signals a greater chance of recovery.

But the IMF warned against undue optimism by noting that recent measures, such as the European Central Bank’s massive lending of low-interest long-term credit to banks, have only temporarily staved off continued risks in the euro zone.

The body emphasized the need for additional policies to prevent a rapid deleveraging among lenders that could sink Europe beyond what is expected to be just a “mild recession.”

Meanwhile, the IMF kept its growth outlook for the Korean economy steady after it slashed its 4.4 percent projection last September to 3.5 percent in January.

“In Korea, a rebound in construction is expected to offset a muted outlook for private consumption and investment due to increased global uncertainty,” it said in its World Economic Outlook report.

Many domestic and foreign agencies have been painting a grimmer picture of Korea’s prospects as uncertain export growth and rising oil prices are expected to take their toll on Asia’s fourth-largest economy this year.

On Monday, the Bank of Korea revised down its economic growth outlook from 3.7 percent to 3.5 percent. It cited an expected drop in on-year export growth from 10.5 percent in 2011 to 4.8 percent, as well as high inflation led by soaring oil costs that have been hovering around $118 per barrel.

However, the Bank of Korea agreed with a majority of global investment banks in proposing that the domestic economy will bottom out in the first half of the year.

Recently enacted free trade agreements are expected to help drive its recovery in the second half.

By Lee Jung-yoon [joyce@joongang.co.kr]